TaxTMI 
TaxTMI 
2010 (7) TMI 1151
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....ons on this issue holding it to be of Revenue nature. 2.2 Both the authorities below have wrongly relying on the decision of Madras Industrial Development Corp. Ltd., Vs CIT 225 ITR 802 [SC]. 3.1 Both the authorities below have erred in treating the liability on account of "Employees Benefit Scheme" [for liability for employees becoming incapacitated or loosing life in accidents while on duty] as deferred revenue and thereby disallowing 80% of it. 3.2 Without prejudice to the above ground, the quantum of disallowance worked out at Rs. 7,469 lacs as 80% of the effective claim of Rs. 2,410 lacs is wrong. 4.1 The authorities below have erred in disallowing u/s 43B of the Income Tax Act 1961, the PF dues of Rs. 5,582.97 lakhs deposited beyond due dates but before the due date for filing of the return in utter disregard to many decisions, including the Hon'ble Supreme Court, on this issue holding it to be allowable. 4.2 The authorities below have erred in not allowing the additional claim u/s 43B of the Income Tax Act 1961, of the PF dues of Rs. 1,088 lakhs disallowed in AY 2002-....
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....inst the amount of loans advanced to IISCO, the balance amount of Rs. 3001 crores was utilized by the assessee company to write down the cost of its fixed assets. The Assessing Officer took a view that this net amount of Rs. 3001 crores represented a part of the cost of assets met by Government of India on behalf of the assessee. According, the Assessing Officer allowed the depreciation on the assets after downward revaluation of such assets by the said amount of Rs. 3001 crores. Learned AR submitted that the depreciation under the Income-tax Act is an allowable only on the WDV of the assets forming part of the gross block. Whether the assessee revalued the assets upward or downward is immaterial for the purpose of depreciation under the Income-tax Act. If the value of asset is enhanced higher quantum of depreciation would not be allowed to the assessee. Similarly, if the value of assets is reduced then also the lower quantum of depreciation should not be brought down. The depreciation should be allowed as per the WDV according to the books maintained by the assessee for income-tax purposes only. He also pleaded that the amount ....
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....Govt. It was submitted by the assessee that SDF loans were in capital field and not in revenue and hence remained a capital receipt when the same was waived and, therefore, the waived amount was not liable to tax. 3. It was also submitted that the assessee had advanced loan of Rs. 381 crores to Scope SAIL, a subsidiary of the assessee company. After SDF loans were waived by the Govt. of India, the assessee waived corresponding loans to Scope of Rs. 381 crores. The assessee further waived / wrote off SDF loans of Rs. 2,073 crores due from Scope. This loan consisted of Rs. 1,566 crores as principal and Rs. 506 crores as interest. The assessee company did not claim as a revenue expenditure in spite of the fact that SAIL and Scope, its subsidiaries were in the same line of business. 4. The assessee company reduced WDV of its fixed assets by the balance of loan of Rs. 3,001 crores i.e. [Rs.5,073 minus Rs. 2,072]. The assessing officer further noted that out of loan of Rs. 2,072 crores advanced by the Govt. to Scope through the assessee company, the assessee had charged interest of Rs. 506 crores on outstanding loan amount, which has ....
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.... been waived off by the Govt. and WDV of assets had been reduced by the assessee to that extent, the assessee was eligible to claim depreciation at the reduced WDV and not the original WDV, in view of provisions of section 43(1) defining term "actual cost" read with provisions of section 32(1) of the Act. Thus depreciation was allowable to the assessee on the reduced WDV of the assets. The assessing officer accordingly disallowed the difference in the amount of depreciation on the original WDV and reduced WDV and an addition of Rs. 6,40,62,069/- was made on this account. 6. On appeal before CIT (A) it was submitted that the assessee was incurring heavy losses and the Govt. of India decided to waive loans of Rs. 5,073 crores outstanding out of various SDF loans given to the assessee much earlier and other similar loans of Rs. 381 crores. The assessee in turn waived a loan of Rs. 2,453 crores given to Scope. Consequently, the assessee was left with capital reserve of Rs. 3,001 crores [Rs.5,073 + Rs. 381 ─ Rs. 2,453], which was not available for distribution of dividends or profits. The total value of assets shown in the accounts of t....
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.... effect of inserting Explanation (10) has been brought out in Circular No. 772, according to which where a portion of cost of an asset acquired by an assessee had been met directly or indirectly by the Central Govt. or a State Govt. or any authority established under any law or by any other person, in form of a subsidy or grant or reimbursement (by whatever name called), then so much of the cost as is relatable to such subsidy or grant or reimbursement shall not be included in the actual cost of the asset to the assessee. The amendment was brought with effect from 1/04/1999 and, therefore, it was relatable to assessment year 1999-2000 and subsequent years. The ld. CIT (Appeals) further noted that from the letters dated 31st March, 1989, 7/09/1989, 12/07/1989, 30th March, 1990 and 24th December, 1991 of the Govt. of India, Department of Steel, that these grants were sanctioned as reimbursement of payments by Scope, was subsidy to assessee for major modernization of its plants. The perusal of other sanction letters of the Govt. of India releasing funds from Steel Development Fund to assessee clearly showed that these funds were granted to the assessee on ca....
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.... Similarly the decision in the case of Cochin Company Pvt. Ltd., Ravi Leather Pvt. Ltd.; and Bharat Coach Company Ltd. were also related to period prior to the amendment in section 43(1) of the Act. Therefore, these decisions were not applicable to the facts of the assessee's case. The ld. CIT (Appeals) also distinguished the decision on facts. The ld. CIT (Appeals) further observed that the decision in the case of Ravi Leather Pvt. Ltd. relied on by the assessee supported the case of the assessing officer wherein it had been held that interest-free loan converted into grant was to be reduced from actual cost of the machinery for the purpose of calculating depreciation and investment allowance. 9. Before us the ld. AR of the assessee submitted that subsidies or grants relatable to the cost of machine are to be reduced for purpose of working out actual cost of the machinery. Loan and purchase are two different transactions. Similarly the loan and subsidy are two different things. The loan was given by the Central Govt. for modernization of the plant of the assessee company and the same was used for purchase of assets. The w....
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.... the assessing officer was well within his jurisdiction to carryout necessary corrections/ rectifications to the "actual cost to the assessee" including written down value. The provisions of Explanation (10) to section 43(1) would be rendered redundant if the contention of the assessee is accepted that they have no relevance with waiver of loan. As regards the contention of the ld. AR of the assessee that no adjustment with respect to written down value of the asset is not permitted as per section 43(6)(c) of the Act, Ld CIT(DR) submitted that correction/rectification was permissible with reference to written down value of machinery. He placed reliance on the decision of Hon'ble Madras High Court in the case of Ravi Leathers Pvt. Ltd. Vs CIT 240 ITR 702, wherein it has been held that the Tribunal was right in holding that the grant given by the foreign company was deductible from the original cost/written down value of machinery for the purpose of depreciation and investment allowance. He also submitted that ITAT, Mumbai 'A'-Bench in the case of ACIT Vs. Jagdish C. Seth (2006)101 ITD 360 (Mumbai) held that where assets were not used for the purpose of business, the valu....
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....n value of individual asset and then aggregate the values of assets which form the particular block of assets. Hence, after April 1, 1962, by virtue of the definition in section 43(1), the actual cost to the assessee which is necessary to be ascertained for the purpose of computing the written down value, any contribution to the cost which has gone to meet directly or indirectly the actual cost to the assessee has to be taken into account and the actual cost has to be reduced by such contributions even if they have proceeded from any other person or authority. 11.2 In CIT Vs. Hides & Leather Products Pvt. Ltd. 101 ITR 61, 74 (Guj.), the assessee who maintained its accounts on the mercantile system purchased a piece of machinery from a foreign firm in 1955. No amount was paid towards the price thereof on the ground that there was some defect in the machinery. The liability to the foreign supplier was shown in the books of account and balance-sheet of the assessee. But in 1960 by making appropriate entries the assessee wrote back the amount of Rs. 30,572 being the price of machinery, debited the amount in the account of the foreign supplier and ....
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....d not on the amount representing the route permit. 11.4 In the case of Gauri Shankar Finance Ltd. Vs. CIT 248 ITR 713 (Kar.), the assessee has two types of business, that is, hire purchase of vehicles and of leasing of consumer durables. The assessee claimed depreciation under section 32 of the Act on the consumer durables/goods leased on the plea that the assets were owned by the assessee and were used by it in its business of leasing. The assessing authority, however, denied depreciation to the assessee on the said assets by holding that the assessee was neither the owner of the assets nor assets were put to any commercial use by it. Assessee was getting the vouchers and other purchase documents made out in its name. It was also found that the assessee was arranging transaction of its leasing business in a way as if the legal ownership vests with it. But, however, it never came to possess the assets in reality. The assets were not shown in the schedule annexed to the balance sheet of the assessee. It was also found that the assessee had never declared the 'scrap value of assets' during their life time even though their written down value had become zero. The ....
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....ion of assets. We may like to mention here that the correctness of decision of Hon'ble Gujarat High Court in the case of CIT Vs. Hides & Leather Products Pvt. Ltd. (supra) was questioned before Hon'ble Supreme Court in the case of in case of Saharanpur Electric Supply Co Ltd V CIT 194 ITR 294. Their Lordships of Hon'ble Supreme Court dismissed the argument advanced on behalf of ld counsel by observing as under (at pages 208 &309): "..........Shri Dastur challenged the correctness of this decision insofar as it held that the original cost itself did not stand modified as a result of the subsequent development. We are not concerned with that aspect here. All that is relevant is that this is a decision which permits an alteration in the figure of actual cost consequent on subsequent factual occurrences that do not relate back. It also shows that the actual cost for 1961-62 could be scaled down for the assessment year 1962-63. There are also other decisions which make it clear that the original cost of an asset may change after the year of installation or erection as a result of further liabilities arising later: CIT v. U.P. Hotel-Restaurant Lt....
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....rposes of the said clause (vi);] (c) in the case of any block of assets,- (i) in respect of any previous year relevant to the assessment year commencing on the 1st day of April, 1988, the aggregate of the written down values of all the assets falling within that block of assets at the beginning of the previous year and adjusted,- (A)by the increase by the actual cost of any asset falling within that block, acquired during the previous year; (B)by the reduction of the moneys payable in respect of any asset falling within that block, which is sold or discarded or demolished or destroyed during that previous year together with the amount of the scrap value, if any, so, however, that the amount of such reduction does not exceed the written down value as so increased; and (C) in the case of a slump sale, decrease by the actual cost of the asset falling within that block as reduced- (a) by the amount of depreciation actually allowed to him under this Act or under the corresponding provisions of the Indian Income-tax Act, 1922 (11 of 1922) in respect of any previous year relevant to the assessment year commencing before the 1st day of ....
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....in the year of acquisition. It is liable to change in subsequent year if the circumstances of the case so warrant. 14. Hon'ble Supreme Court in the case Saharanpur Electric Supply Co Ltd V CIT 194 ITR 294 while examing the issue relating to actual cost held as under ( Head Notes): "The first step, statutorily prescribed for the determination of the written down value of any asset for any year, is for the assessing officer to determine its actual cost. This is a mandatory step which the assessing officer cannot be prevented from taking merely because the actual cost of the asset had already been determined in one or more earlier years. The definition of written down value in section 43(6) of the Income-tax Act, 1961, envisages the computation of the actual cost of each asset, for every assessment year, not only in respect of assets acquired during the previous year, but also in respect of assets acquired before the previous year. This naturally has to be done with reference to the factual or legal position that might prevail during the relevant previous year and could be taken into account for the relevant assessment year. The....
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....reate any injustice or hardship; on the contrary, it is only reasonable and just. Where a person purchases an asset it may be correct to say that the cost of the asset does not change because the part of the cost is met by someone else, but the legislature had to decide whether an assessee should be allowed to claim an allowance or depreciation in respect of the asset on the artificial basis of the cost of the asset rather than on what he has actually spent to acquire that asset and whether the working of the original provision, as interpreted by courts, had not conferred an undue advantage or benefit on the assessee. This was not considered by the legislature to be equitable and, therefore, it was altered by legislation. It accords with reason that the provision should be interpreted to say that, at least after amendment, the assessee should not be allowed depreciation on the basis of earlier figure of cost. It is incontrovertible that, under section 43(1) read with section 43(6), the officer has to determine the actual cost for all assets, new or old and the definition of section 43(1) only requires that, at the time of doing so, he has to e....
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....s Ltd. 210 ITR 830 (SC) wherein the decisions in the case of CIT Vs. Janak Tubes Pvt. Ltd. 179 ITR 536 (P&H); and CIT Vs. Jindal Bros. Rice Mills 179 ITR 470 (P & H) have been reversed by holding that where Govt. subsidy is an incentive not for specific purposes of meeting a portion of the cost of the asset though quantified as or geared to a percentage of such cost, it does not partake the character of payment intended either directly or indirectly to meet the actual cost. 16. Explanation 10 to section 43(1) was inserted the Finance Act (No.2), 1998 with effect from 1/04/1999 which reads as under: Explanation 10.-Where a portion of the cost of an asset acquired by the assessee has been met directly or indirectly by the Central Government or a State Government or any authority established under any law or by any other person, in the form of a subsidy or grant or reimbursement (by whatever name called), then, so much of the cost as is relatable to such subsidy or grant or reimbursement shall not be included in the actual cost of the asset to the assessee : Provided that where such subsidy or grant or reimbursement is of such nature that i....
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....ction 43A. In this case it has been held that the manner of repayment of loan cannot affect the cost of assets acquired by the assessee. What is the actual cost depends on the amount paid by the assessee to acquire the asset. The amount may have been borrowed by the assessee. But even if the assessee did not repay the loan will not alter the cost of the asset. In the case before us the loan has been waived off by the Central Government. Therefore, the facts of the case before us are entirely different and distinguishable from the facts of Tata Iron and Steel Company Ltd. (Supra). The second issue before Hon'ble Supreme Court in the case of Tata Iron and Steel Company Ltd. (Supra) related to reduction of loan amount due to foreign exchange fluctuation. Section 43A has been inserted in the statute w.e.f. 01.4.1967 by the Finance (No. 2) Act 1968, whereas the assessment years involved in the case of Tata Iron and Steel Company were 1960-61 & 196162. Under section 43A, where an assessee acquires any asset from a country outside India for the purpose of his business or profession and, in consequence of a change in the rate of exchang....
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....s of the assessee. The assessee did not pay interest and principal amount over the period of several years. In the year under consideration the Government of India took a decision to waive off the loan amount together with interest. This waiver of loan by the Government of India results into cessation of liability towards payment of loan. The waiver of loan is thus in nature of grants from the Government for the purposes meeting the costs of assets for the purposes of modernisation of various steel plants of the assessee. Accordingly the assessee's case is squarely covered by the decision of Hon'ble Supreme court in the case of Sharanpur Electric Supply Co Ltd (Supra) and therefore the assessing officer was justified in reducing the cost of assets by the amount of loan waived off by the central Government. The facts of the case are covered by the decision of Hon'ble Supreme Court in the case of Saharanpur Electric Supply Company Ltd. (Supra); Hon'ble Gujarat High Court in the case of CIT v/s Hides and Leather Products P. Ltd. (Supra); Ravi Leathers P. Ltd. (supra); and Gaurishanker Finance Co Ltd (supra) wherein it has been held that the cost of assets may change prospe....
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....s covered in favour of the assessee by the decision of the ITAT, cited supra. 7. After hearing both the sides, we find that the ITAT in its decision (cited supra) has decided the issue in favour of the assessee by holding as under :- "21. We have heard both the parties and gone through the material available on record. The assessing officer in assessment years 1993-94 and 1994-95 has allowed the claim of the assessee in respect of expenses on VRS, cost on reduction studies, development expenses and removal of over-burden in the year in which expenditure was incurred though the assessee treated the expenses as deferred revenue expenditure. Section 35-DDA was inserted in the statute by Finance Act, 2001 with effect from 1/04/2001. Therefore, the provisions of section 35-DDA of the Act can not be applied for the expenditure incurred in assessment year 2000--01. ITAT, Jodhpur Bench, in the case of P. I. Industries (supra) has held that the provisions of section 35-DDA were not retrospective in nature. Hon'ble Madras High Court in the case of CIT Vs. Sympson & Company (supra) has held that when payment is made for purpose of retrenchment of work....
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....It has also been submitted that C & A G has raised objections for not treating the amount in full as revenue expenditure. There are two important aspects of employees benefit scheme i.e. (i) the date of accident resulting in loss of life or limb; (ii) the last salary drawn by the employee involved in the accident. On the basis of these two parameters the amount payable to the assessee is determined and accordingly the assessee provided in its accounts the liability on the basis of actuarial method of valuation. Thus the assessee has provided whole of the expenditure in current year which was to incurred in several so many years to come. The liability of assessee is known on year to year basis and assessee was rightly claiming such amounts in returns of income. It is not a case where liability would arise in future for which provision is to be made on scientific basis. In such cases the provision is made on actuarial basis and payment is made on occurrence of the event. In the case of assessee the event occurs first and provision is made for balance year of service to be rendered by a particular employee and claimed as deduction for entire sum in one go. In our view the assess....
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....p; CIT vs. Alom Extrusions Limited 319 ITR 306 (SC) where the Hon'ble Supreme Court held as under :- " The omission of the second proviso to section 43B of the Incometax Act, 1961, by the Finance Act, 2003, operated, retrospectively, with effect from April 1, 1988 and not prospectively from April 1, 2004. Earlier under the second proviso to section 43B as amended by the Finance Act, 1989, assessees were entitled to deduction only if the contribution stood credited on or before the due date given in the Provident Funds Act. This created further difficulties and on a representation made to the Finance Ministry one more amendment was made by the Finance Act, 2003. Though this amendment was made applicable with effect from April 1, 2004, the amendment was curative in nature and applied retrospectively with effect from April 1, 1988. When a proviso in a section is inserted to remedy unintended consequences and to make the section workable, the proviso which supplies an obvious omission therein is required to be read retrospectively in operation, particularly to give effect to the section as a whole." Respectfully following the same, we....
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.... record. ITAT while allowing the claim of the assessee in para 11 of order dated 28th November, 2008 held as under :- " 11. It was an assessee's continuing liability which stretched to a period of 12 years (in that case) that the proportionate liability was disallowed. In the present case, that the expenses incurred for the issue of the bonds are not in the nature of liability in the nature of the discount on the debentures. It stands on a different footing. The routine expenditure is incurred and there is no continuing liability in such expenditure. When debentures are issued, whether at a discount or not, there would be expenditure and the Supreme Court in the case of Madras Industrial & Investment Corporation Ltd. had dealt with the issue of the discount on the debentures and not on the issue of the routine expenses in relation to issue of the debentures/bonds. That being so, we are of the view that the decision of the Supreme Court in the case of India Cement Ltd would apply and as the expenditure has been incurred during the relevant assessment year in relation to the issue of the bond itself such expenditure is li....
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....n exchange fluctuation reserve-"created by debit to P&L A/c of this year and the earlier years but not allowed as a deduction in computation of Taxable Income may be considered for allowance in this year as the foreign exchange fluctuation met in this year on account of actual fluctuation. It is correct that in accordance to the provision of Sec.43A when the assessee has to discharge additional liability in rupee terms for repayment of foreign exchange loan then the assessee is eligible to enhance the cost of asset to that extent and claim depreciation on it. However the learned A.O. has not discussed about it in his order. Therefore, the A.O. is directed to examine the issue and allow consequential depreciation on it in accordance to law. If necessary the assessee may be given an opportunity of being heard." 12.2 At the outset, it was mentioned that Ground Nos.6.1 & 6.2 is also covered in favour of the assessee by the decision of ITAT, cited supra, where the ITAT held as under :- "22. The next issue for consideration, which is common in all the three assessment years, relates to disallowance of interest of 8 per cent payable to KFW, German....
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....l Republic of Germany and conducted their significant portion of their business. This is evident from article 1.2 of the loan agreement. Article 3.2 (a) of the loan agreement provides for liability on account of the interest @ 8.75 % p.a. It reads as under : "3.2 a) The borrower shall pay interest on Portion I of the Loan at a rate of 8.75% p.a. Of this interest rate the borrower shall pay 0.75 percent p.a. in Deutsche Mark to the account of KFW specified in Article 3.12. Of the balance of 8.0% p.a. 4.0% p.a. shall be allocated to provisions to be used exclusively to cover exchange rate losses incurred in connection with this Loan while the remaining 4.0% shall be used for Pollution Control Environmental Management Schemes of Rourkela Steel Plant. In this cases payments shall be effected in local currency with debt discharging effect. If the exchange rate losses fall below the provisions thus made, remaining provisions shall be written back, the amount thus released shall also be used for Pollution Control Environmental Management Schemes of Rourkela Steel Plant. Interest shall be charged from the date at which di....
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....ssee. It was used as per stipulation in the loan agreement. Both are conditions subsequent and do not affect the liability to payment @ 8.75% fixed as per the agreement. The liability having been incurred, the same was liable to be allowed as revenue expenditure. It is only as per the subsidiary condition of the agreement that the method of disbursement of the interest liability has been complied with by the assessee and this would not mean that there is any remission of the liability nor can it be said that the remission on the part of the lender KFW. This being so, the finding of the ld. CIT(A) and the AO on this issue are reversed and the AO is directed to allow the claim of interest liability at 8.75 % as claimed. " 25. Since the issue is squarely covered by the decision of the ITAT in assessee's own case in assessment year 1998-99 and no new facts have been brought on record, we do not find any reason to differ from the view taken by this Tribunal. Accordingly, the assessing officer is directed to allow the claim of the assessee on payment of interest at the rate of 8.75 per cent as claimed by the assessee."&....
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.... depreciation on intangible assets is available under section 32(1)(ii) of the Act with effect from 1/04/1999 i.e. on assets acquired after 31st March, 1998. The assessing officer did not consider the mining rights as business or commercial rights and accordingly disallowed the claim. It has further been submitted that the claim in earlier years is pending before the ld. CIT (Appeals) for rectification. Alternatively, it has been pleaded that the expenses are revenue in nature and should be allowed. He placed reliance on the decision of Hon'ble Andhra Pradesh High Court in the case of CIT Vs. Panyam Cement & Mineral Industries Ltd. 228 ITR 212 (AP) and in the case of CIT Vs. Wokem P. Ltd. Co. 258 ITR 350 (Raj). On the other hand, the ld. Sr. DR submitted that the depreciation on intangible rights is available with effect from 1/04/1999 on assets acquired after 1/04/1998. The year in which the mining rights were obtained is not available on record and, therefore, the claim for depreciation is not allowable. 48. We have heard both the parties. Depreciation on intangible assets has been provided in the statute with effect ....